Appendix 2

TREASURY MANAGEMENT PRACTICES

Part 2: Schedules

July 2002

Basingstoke and Deane Borough Council

Treasury Management Practice Schedules 2002/03 2

TREASURY MANAGEMENT PRACTICES - SCHEDULES

This section contains the schedules which set out the details of how the Treasury Management Practices (TMPs) are put into effect by this organisation.

TMP 1 Treasury risk management

TMP 2 Best value and performance measurement

TMP 3 Decision–making and analysis

TMP 4 Approved instruments, methods and techniques

TMP 5 Organisation, clarity and segregation of responsibilities, and dealing

arrangements

TMP 6 Reporting requirements and management information arrangements

TMP 7 Budgeting, accounting and audit arrangements

TMP 8 Cash and cash flow management

TMP 9 Money laundering

TMP 10 Staff training and qualifications

TMP 11 Use of external service providers

TMP 12 Corporate governance

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TMP1 TREASURY RISK MANAGEMENT

1.1 LIQUIDITY

1.1.1 The amount of short-term cash investments will be managed at a level which

minimises any requirement for short term borrowing without tying up an

excessive level of funds which could otherwise be invested at higher interest

rates.

1.1.2 In the event of the Council having to borrow for short term cash flow reasons

this will be carried out through the money markets or from the Council’s bank if

more economic. In the unlikely event of any problem securing funds through

the money market, the Council has an overdraft limit with its bank of

£3,000,000 and can recall money from external fund managers within

approximately one week.

1.2 INTEREST RATE

1.2.1. The minimum rate of interest at which new investments are to be made will be

agreed by the Treasury Management Policy Team, taking account of external

adviser’s interest rate forecasts, at monthly treasury management meetings

and may be reviewed at any time depending on money market developments.

1.2.2. In order to control the Council’s exposure to interest fluctuations a minimum of

50% of investments will be at interest rates which are fixed for a minimum of

one year. The exact maturity of investments over 1 year will be managed to

ensure a relatively consistent amount of investments mature each year for the

next 5 years, with not more than £40 million (including equities) invested for

more than five years - this being approximately 40% of the forecast long term

investment funds of the Council.

1.3. INFLATION

1.3.1. In order to control the Council’s exposure to inflation a minimum of 30% of

investments will be at interest rates which are variable or fixed for less than

one year.

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1.4. CREDIT AND COUNTERPARTY POLICIES

1.4.1. The Director of Corporate Resources will use IBCA credit ratings for assessing

and monitoring the credit risk of investment counterparties. The minimum level

of credit rating for an approved counterparty will be as shown in Appendix 1.

This minimum level of acceptable rating will be reviewed annually by the

Treasury Management Policy Team.

1.4.2. In addition, for deposits fixed for up to one year, the Council will use building societies

which do not have credit ratings but which have assets over £1,000,000,000. The

maximum deposit invested with each such building society will be £2 million.

1.4.3. The Director of Corporate Resources will construct a lending list comprising

time, type, sector and specific counterparty limits. The lending list as at 1 April

2002 is attached as Appendix 2.

1.4.4. Credit ratings for individual counterparties can change at any time. The

Director of Corporate Resources will add or delete counterparties as

appropriate to / from the approved counterparty list when there is a change in

the credit ratings of individual counterparties or in banking structures e.g. on

mergers or takeovers. Details of changes in ratings will be provided by the

Council’s treasury management advisors.

1.4.5. The maximum period for fixed interest deposits will be 1,3 or 5 years

depending on the strength of credit rating as shown in Appendix 2.

1.4.6. The maximum period for investment in Euro-bonds will be 10 years subject to

the stock being issued by a UK institution with a minimum rating of AA-

(Standard and Poors and Fitch) or AA3 (Moody’s), or A1 subject to the specific

authorisation of the Director of Corporate Resources. The maximum euro-bond

investment will be £5 million per institution.

1.4.7.Subject to the above, the maximum value invested with any financial institution

or company group will be £5 million excluding short term deposit accounts

which will be limited to £5million per institution.

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1.4.8.The maximum invested by the in-house treasury management team in the

building society sector will be £20 million.

1.4.9.External managers will be required to invest within the Council’s lending list

and restrict the maximum invested with each name to £5 million, subject to a

maximum 25% of the fund being invested with UK building societies.

1.5. LEGAL AND REGULATORY FRAMEWORK

1.5.1. Treasury management activities will be carried out in accordance with rules

governing the investment of local authorities funds as set out in the Local

Authorities (Capital Finance) (Approved Investments) Regulations 1990 and the

Local Authorities (Capital Finance) Regulations 1997, as amended.

1.5.2. In addition activities will be conducted in accordance with the Council’s

approved Treasury Management Strategy, Treasury Management Policy

Statement and Council Constitution. This includes the adoption of CIPFA’s Code

of Practice for Treasury Management in the Public Services.

1.5.3.Evidence of officers delegated powers to make investment decisions is

contained within the Council Constitution and will be provided to counter-

parties on request.

1.5.4.Before any investments are made with external fund managers (including unit

trusts) certification will be obtained from the counter-party of their legal

authorisation and power to contract with the Council. All the banks included on

the Council’s lending list are authorised under the Banking Act 1987 to accept

deposits in the UK and all building societies are regulated by the Building

Societies Act 1986.

1.6. FRAUD, ERROR AND CORRUPTION, AND CONTINGENCY MANAGEMENT

1.6.1. In order to minimize the possibility of fraud, error or corruption, procedures for

carrying out and monitoring treasury management activities involve rigorous

requirements for audit, checking, control and reporting. These requirements

are detailed in the relevant schedules eg TMP5 Organisation, Clarity and

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Segregation of Duties and Dealing Arrangements.

1.6.2. In the event of any fraud or corruption this will immediately be reported to the

Director of Corporate Resources and Head of Internal Audit, who will then

determine the appropriate course of action. Similarly, any errors which result in

the breach of procedures set down in these practice notes will be reported to

the Director of Corporate Resources.

1.6.3.Procedures to be implemented in the event of a disaster are contained in

Council’s Emergency Recovery Plan – see Appendix 3. In order to ensure that

this can be implemented details of key treasury management phone numbers

and a list of the Council’s outstanding investments are stored off-site.

1.6.4.The Council’s fidelity guarantee insurance provides cover of up to £5 million for

losses caused by fraud within the Corporate Resources Department and

£250,000 for fraud in other departments.

1.7. MARKET VALUE OF INVESTMENTS

1.7.1. The market value of the Council’s investments is regularly monitored and is

reported quarterly to the Treasury Management Team. However, those

investments which are managed internally and are subject to fluctuations in

their market value ie corporate bonds and equities, are long term investments

and it is anticipated that they will be held until maturity in the case of bonds or

for a minimum of five years in the case of equities.

1.7.2. Procedures for controlling exposure to changes in capital values in respect of

cash and gilt funds managed externally are determined by the external

managers within the performance targets and duration limits they are set by

the Council. These targets and limits ensure that exposure to market value

fluctuations is limited, to the extent that negative returns are unlikely over a

one year period, without entirely removing the managers discretion to take

advantage of investment opportunities.

1.7.3.The market value of the Council’s equity investments, which are managed by

unit trust managers, can be very volatile. However, historically equities have

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produced substantially better returns than money market investments in the

long term (over 5 years). The Council’s exposure to fluctuations in market value

is controlled by restricting the amount invested in equities to £10 million (less

than 10% of investment funds) and investing equity funds in two different,

relatively low risk, unit trusts ie those which diversify investment across

predominantly large UK based companies.

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2. TMP 2 BEST VALUE AND PERFORMANCE MANAGEMENT

M ETHODS TO BE EMPLOYED FOR MEASURING AND EVALUATING THE

PERFORMANCE OF THE ORGANISATION’S TREASURY MANAGEMENT

ACTIVITIES

2.1.1 The performance of the Council’s investments is monitored on a continual basis

through the use of a Reuters News Agency screen located in Financial Services.

Formal performance updates incorporating latest valuations from fund

managers are reported quarterly to the Treasury Management Team and these

figures are incorporated into the quarterly revenue monitoring reports

submitted to Management Team, the Leader/Deputy Leader and the Finance

and Accounts Review Panel (FARP). In addition, the Treasury Management

Outturn Report, which is submitted to full Council, includes extensive

performance comparisons.

2.1.2 The performance of the Council’s investments are compared against each other

(eg internally managed with externally managed) and against their benchmarks

eg the 7 day rate, the 0-5 year gilt index and the FTSE 100/All-Share Indices.

For the Outturn Report, the performance of the Council’s investments is also

compared with the returns achieved by other fund managers not currently used

by the Council. Quarterly updates on how other fund mangers are performing is

also provided to the Treasury Management Group by the Council’s Treasury

Management advisors.

2.1.3 In addition, meetings are held every 6 months with the Council’s external fund

managers and the Council’s independent external adviser, at which their past

performance and future strategy are reviewed.

2.2 POLICY FOR TESTING BEST VALUE IN TREASURY MANAGEMENT

2.2.1 The Council appoints an external consultant to advise on treasury management

in order to obtain expert independent advice on a range of treasury

management issues eg interest rate forecasts, investment instruments,

investment strategy, credit ratings, performance monitoring, appointment of

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fund managers etc. The contract is reviewed and re-tendered every 3 years to

ensure competitive pricing.

2.2.2 Banking services are also re-tendered or renegotiated every 3 years to ensure that the level of prices

reflect efficiency savings achieved by the supplier and current pricing trends.

2.2.3 The Council sometimes uses money broking services in order to make deposits or to borrow.

Charges for all services are established prior to using them and the use of brokers takes account of

both prices and quality of services. The use of brokers is reported quarterly to the Treasury

Managment Policy Team.

2.2.4 The Council’s policy is to appoint full-time, professional, external investment fund managers. In

implementing this policy the Council will comply with the Local Organisations (Contracting Out of

Investment Functions) Order 1996 [SI 1996 No 1883}.

2.2.5 The performance of the Council’s cash/gilt fund managers is reviewed on a rolling three year

timescale and this performance information is included in the Treasury Management Outturn report.

The responsibility for appointing cash/gilt fund managers is delegated to the Director of Corporate

Resources. If it is determined that a change in cash/gilt fund manager is required this will be

implemented on a tender basis followed by interviews with prospective managers, with the

assistance of the Council’s treasury management adviser.

2.2.6 The delegation of investment management to external managers will entail the following :

Agreement of a formal contractual agreement and documentation;

Agreement on terms for early termination of the contract;

Setting of a benchmark and a performance target;

Setting of investment counterparty constraints;

Monthly and quarterly reporting of performance;

6 monthly meetings with investment managers;

2.2.7 The performance of the Council’s borrowing activities is monitored by calculating the average

interest rate on external borrowing, quarterly for the Treasury Management Group and annually for

the Treasury Management Outturn Report. The average borrowing rate is compared against the

average 7 day rate over the same period.

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2.2.8 The performance of the Council’s unit trust managers (equities) is reviewed on a rolling three year

timescale and this performance information is included in the Treasury Management Outturn report.

The responsibility for investing in equities via unit trusts is delegated to the Director of Corporate

Resources. If it is determined that a change in unit trust is required this will be implemented

following a comparison of the performance, management and policies of different unit trusts by the

Director of Corporate Resources.

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TMP 3 DECISION-MAKING AND ANALYSIS

3.1 FUNDING, BORROWING, LENDING, AND NEW

INSTRUMENTS/TECHNIQUES

3.1.1 In carrying out Treasury Management responsibilities the Director of Corporate

Resources will chair a Treasury Management Policy Team. This team of senior

officers (including the Director, Head of Financial Services, Chief Accountant

and Group Accountant (Corporate Finance)) will meet monthly to discuss and

agree the implementation of the treasury management strategy, monitor

performance and make decisions on operational treasury management issues.

3.1.2 Full records will be maintained of the Treasury Management Policy Team’s

decisions, and of the processes and practices applied in reaching those

decisions, both for the purposes of learning from the past, and for

demonstrating that reasonable steps were taken to ensure that all issues

relevant to those decisions were taken into account at the time.

3.1.3 Detailed records are also maintained of all borrowings and investments made

by the Council. These records are reconciled monthly to the financial

information system.

3.1.4 In respect of every decision made the Council will:

(i) above all be clear about the nature and extent of the risks to which the

organisation may become exposed

(ii) be certain about the legality of the decision reached and the nature of the

transaction, and that all authorities to proceed have been obtained

(iii) be content that the documentation is adequate both to deliver the Council’s

objectives and protect the Council’s interests, and to deliver good

housekeeping

(iv) ensure that third parties are judged satisfactory in the context of the

Council’s creditworthiness policies, and that limits have not been exceeded

(v) be content that the terms of any transactions have been fully checked

against the market, and have been found to be competitive.

3.1.5 In respect of investment decisions, the Council will:

(i) consider the optimum period, in the light of cash flow availability and

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prevailing market conditions

(ii) consider the alternative investment products and techniques available,

especially the implications of using any which may expose the Council to

changes in the value of its capital.

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4 TMP 4 APPROVED INSTRUMENTS, METHODS AND TECHNIQUES

4.1TREASURY MANAGEMENT PROCEDURE NOTES

4.1.1 Detailed procedures to be followed when carrying out any borrowing or

investment activities are set out in Appendix 4. These include settlement

transmission procedures, controls, authorisation and documentation

requirements.

4.2APPROVED ACTIVITIES OF THE TREASURY MANAGEMENT OPERATION

borrowing;

lending;

consideration, approval and use of new financial instruments and treasury

management techniques;

managing the underlying risk associated with the Council’s capital financing

and surplus funds activities;

managing cash flow;

banking activities;

leasing;

the use of external fund managers;

4.3 APPROVED INSTRUMENTS FOR INVESTMENTS

4.3.1 In accordance with the Council’s treasury management strategy the instruments that will be used for

investments are:

(i) Investments approved under The Local Government (Capital Finance) (Approved Investments)

Regulations 1990 and subsequent amendments ie:

Gilts;

Treasury Bills;

Deposits with banks, building societies or local authorities (and certain other bodies) for up to 5

years;

Certificates of deposits with banks or building societies for up to 5 years;

Euro-Sterling issues by certain Supra-national bodies listed on the London and Dublin Stock

Exchanges;

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Sterling Money Market Funds in the UK or EU with a AAA rating.

(ii) Investments approved in the Council’s Treasury Management Strategy by virtue of the Council’s

debt free status (of up to a combined £40 million ) in:

Euro sterling corporate bonds with a maturity date of up to 10 years from the purchase date

Local authority bonds with a maturity date of up to 25 years from the purchase date

Equity based unit trusts (maximum investment £10 million).

4.4 APPROVED METHODS AND SOURCES OF RAISING CAPITAL FINANCE

4.4.1 In accordance with the approved Treasury Management Strategy, capital expenditure will be

financed from revenue contributions via the Revenue Reserve for Capital Purposes and other

reserves, capital receipts and contributions from other organisations. Operating or finance

leases will be used where financially or operationally advantageous. In order to maintain the

Council’s debt free status no borrowing will be agreed for more than 364 days.

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TMP 5 ORGANISATION, CLARITY AND SEGREGATION OF

RESPONSIBILITIES, AND DEALING ARRANGEMENTS

5.1 In accordance with the Council Constitution, full Council is responsible for

approving the annual treasury management strategy. The Leader and Deputy

Leader are then responsible for approving policies for the allocation and control of

the Council’s financial resources, including treasury management in accordance

with the approved annual strategy. The Director of Corporate Resources is

responsible for undertaking the allocation and control of the Council’s financial

resources in accordance with approved policies.

5.2 Responsibilities of Staff Relating to Treasury

Management

5.2.1 Director of Corporate Resources

Chair the Treasury Management Policy Team

Ensure that Treasury Management activities comply with the CIPFA Code of

Practice for Treasury Management

Recommend Treasury Management Practices to the Leader and Deputy Leader for

approval

Submit budgets for treasury management activities

Agree actions for the implementation of the Council’s Treasury Management

Strategy

Report to full Council on the Treasury Management Strategy for the next financial

year and the Treasury Management Outturn for the past financial year.

Receive and review quarterly treasury management performance reports

Promote best value reviews of treasury management

Ensure the adequacy of internal audit and liaise with external audit

Review and appoint fund managers and treasury management consultants.

Approve the Council’s lending list and any changes to it.

5.2.2 Head of Financial Services

Review performance of the Treasury Management function at least quarterly.

Ensure staff involved in treasury management receive appropriate training.

Ensure that the treasury management function is adequately resourced to meet

current requirements.

Advise Director of Corporate Resources on treasury management matters.

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Absence cover for the Director of Corporate Resources.

5.2.3 Chief Accountant

Ensure the Treasury Management Strategy Report and the Treasury Management

Outturn Report are prepared annually and complied with.

Ensure that Treasury Management Practices exist and are reviewed annually.

Ensure there is adequate internal checking and control.


Absence cover for the Head of Financial Services and Group Accountant (Corporate

Finance)

5.2.4 Group Accountant (Corporate Finance)

Manage the treasury management function

Prepare the annual Treasury Management Strategy Report and the annual

Treasury Management Outturn Report.

Prepare an annual budget for treasury management activities.

Ensure implementation of treasury management actions agreed by the Director of

Corporate Resources

Ensure the production of the Treasury Management Practice Notes (TMPs)

Ensure that treasury management practices are complied with.

Ensure the appropriate division of duties within the section.

Assess and recommend appointment of brokers and performance of brokers

employed.

Review TMPs at least annually.

Identify and recommend opportunities for improved treasury management

practices.

Arrange and prepare information for monthly treasury management meetings with

the Director of Corporate Resources, Head of Financial Services and Chief

Accountant.


Monitor and report on the activities of fund managers.

Ensure all staff involved in dealing are aware of the principles contained in the

Bank of England’s London Code of Conduct for corporate dealing in the money

markets.

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Absence cover for the Assistant Group Accountant.

5.2.5 Assistant Group Accountant (Corporate Finance)

Check daily cashflow and agree dealing in accordance with instructions of Group

Accountant

Ensure adherence to Council’s lending list.

Check monthly treasury management reconciliations and controls

5.2.6 Senior Accountancy Assistant (Treasury Management)

Preparation of daily and long term cashflow projections.

Dealing and recording of deals.

Completion of CHAPS forms.

Compliance with London of Conduct principles

Production of monthly reconciliations

Maintenance of treasury management controls and documentation

Agreement of treasury management receipts and pursuit of any late payments

Implementation of dealing processes detailed in TMPs

Calculation of treasury management returns for monthly/quarterly/annual reports.

5.2.7 Senior Accountancy Assistant (Corporate Finance)

Absence cover for Senior Accountancy Assistant (Treasury Management)

5.2.8 Internal Audit

The responsibilities of Internal Audit will be: -

Reviewing compliance with approved policy and procedures

Reviewing division of duties and operational practice

Assessing value for money from treasury activities

Undertaking systems audit of the treasury function.

5.3Dealing and Decision Making Limits

5.3.1 All staff authorised to deal on behalf of the Council must comply with the

lending list limits set by the Director of Corporate Resources and detailed in

TMP1.

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5.3.2 All treasury management activities should be carried out in accordance with the

annual strategy agreed by Council.

5.3.3 No dealing should take place without first consulting the Assistant Group

Accountant or the Group Accountant (or their absence cover).

5.3.4 Deals will be agreed by the dealing officer subject to the terms being in

accordance with the instructions agreed with the Assistant/Group Accountant.

5.4Policy on taping of conversations

5.4.1 In accordance with the recommendations of the Bank of England’s London Code

of Conduct the dealing officer will, having made the other party aware, record

dealing phone calls and save the recordings until written confirmation of the

deal is agreed.

5.5Direct dealing practices

5.5.1 As an alternative to the brokers used by the Council, deals may be agreed directly

with counterparties included on the Council’s lending list. The decision on whether to

deal directly or through brokers will be made by the dealing officer depending on

which option provides the best rate of interest to the Council. In order to determine

this it would normally be expected that both brokers and selected direct

counterparties would be approached either by phone or electronically (through

Reuters or the internet) in order to be able to compare interest rates.

5.6 Division of Duties

In order to reduce risk the following duties are divided between different staff:

Deal confirmations from counter-parties are initially received by the Group

Accountant rather than the dealing officer, so that more than one person is

aware of the activities that have been carried out.

Deal confirmations are required to be signed by an approved signatory

(outside the Treasury Management team) before being faxed to the

counter-party.

Payment of funds is the responsibility of the Financial Systems rather than

the Treasury Management Team.

As part of the procedures for making a CHAPS payment two different

members of staff from the financial systems team are required to input and

submit a payment and the form requesting the payment has to be signed by

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two members of the Treasury Management team plus an authorised

signatory.

Receipt of funds is monitored by the Financial Systems rather than the

Treasury Management Team.

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TMP 6 REPORTING REQUIREMENTS AND MANAGEMENT

INFORMATION ARRANGMENTS

6.1 Annual Treasury Management Strategy

6.1.1 The Treasury Management Strategy sets out the expected treasury activities for the forthcoming

financial year. This Strategy will be submitted to the Finance and Accounts Review Panel for

comment and then to Cabinet and full Council for approval before the commencement of each

financial year.

6.1.2 The formulation of the annual Treasury Management Strategy involves determining the appropriate

borrowing and investment decisions in the light of the anticipated movement in both fixed and

shorter -term variable interest rates.

6.1.3 The Treasury Management Strategy is concerned with the following elements:

the prospects for interest rates;

the limits placed by this organisation on treasury activities

the expected borrowing strategy;

the expected investment strategy (including the use of fund managers)

6.2 Borrowing Limits

6.2.1 As required by section 45 of the Local Government and Housing Act, 1989, the Council must

approve before the beginning of each financial year the following treasury limits:

the overall borrowing limit

the amount of the overall borrowing limit which may be outstanding by way of short

term borrowing

the maximum proportion of interest on borrowing which is subject to variable rate interest.

6.2.2 The Director of Corporate Resources is responsible for incorporating these limits into the Annual

Treasury Management Strategy, and for ensuring compliance with the limits. Should it prove

necessary to amend these limits, the Director of Corporate Resources will submit the changes to the

Cabinet (via the Leader and Deputy Leader) before submission to the full Council for approval.

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6.3 Annual Outturn Report on Treasury Management Activity

6.3.1 An annual report will be presented to the Finance and Accounts Review Panel and the Cabinet

before being submitted to full Council for approval, at the earliest practicable meeting after the end

of the financial year, but in any case by the end of September. This report will include the

following: -

a comprehensive picture for the financial year of all treasury policies, plans, activities and

results

transactions executed and their revenue (current) effects

report on risk implications of decisions taken and transactions executed

monitoring of compliance with approved policy, practices and statutory / regulatory

requirements

monitoring of compliance with powers delegated to officers

degree of compliance with the original strategy and explanation of deviations

explanation of future impact of decisions taken on the organisation

measurements of performance

report on compliance with CIPFA Code recommendations

6.4 Management Information Reports

6.4.1 Management information reports will be prepared every quarter by the Group Accountant

(Corporate Finance) and will be presented to the following officers: -

Director of Corporate Resources

Head of Financial Services

Chief Accountant

These reports will contain the following information:

Summary of year to date investment and borrowing performance analysed by quarter

Comparison of investment income to date with the original estimate and calculation of the

forecast outturn.

Analysis of fund managers’ activities and performance in year to date

Details of internally managed borrowing and lending activities in year to date

Latest valuations of corporate bonds and equity investments and year to date performance

analysis

Analysis of year to date broker performance

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Review of investment strategy for current year incorporating investment periods, lending

outstanding/agreed and target interest rates based on latest economic forecasts

Capital financing review

Any other treasury management issues arising in past month eg changes in regulations, credit

ratings, proposed legislation and consultation.

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TMP 7 BUDGETING, ACCOUNTING AND AUDIT

ARRANGEMENTS

7.1ACCOUNTING PRACTICES AND STANDARDS

7.1.1 In accordance with the Accounting Code Practice issued by CIPFA the Council

will bring together for budgeting and management control purposes all of the

costs associated with treasury management activities. These costs will be

included in the budget book under Corporate Management within the Leader

and Deputy Leader Portfolio.

7.1.2 The working papers supporting the budget for treasury management will clearly

identify the following:

- staff costs

- administrative costs eg IT, stationary

- bank charges

- fund managers fees

- external advisers fees

7.1.3 The budget for interest and other investment income will also be calculated for

inclusion in the Summary Revenue Account published in the budget book.

Working papers supporting this will identify the interest rate assumptions that

have been used and the cashflow forecast (incorporating capital and revenue

income and expenditure).

7.2LIST OF INFORMATION REQUIREMENTS OF EXTERNAL AUDITORS

7.2.1 External auditors will have access to all papers supporting and explaining the

operation and activities of the treasury management function. It is expected

that the auditor will enquire whether the CIPFA Code on Treasury Management

has been adopted and adhered to.

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TMP 8 CASH AND CASH FLOW MANAGEMENT

8.1ARRANGEMENTS FOR PREPARING/SUBMITTING CASH FLOW STATEMENTS

8.1.1 An up to date and detailed cashflow estimate will be maintained in order to

effectively manage cash balances and to calculate interest and investment

income. The cashflow estimate for the next financial year will be produced in

accordance with the estimates timetable (usually around October) and will then

be updated throughout the year. Details of the procedures for the preparation

of the cashflow projection are set out in Appendix 5. The regular review and

updating of the cashflow is included in the treasury management processes

detailed in TMP3.

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P 9 MONEY LAUNDERING

9.1PROCEDURES FOR ESTABLISHING IDENTITY / AUTHENTICITY OF LENDERS

9.1.1 This organisation does not accept loans from individuals. All loans are obtained

from authorised institutions under the Banking Act 1987, building societies or

from other public sector bodies eg the Bank of England or other local

authorities.

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TMP 10 STAFF TRAINING AND QUALIFICATIONS

10.1 DETAILS OF APPROVED TRAINING COURSES

10.1.1The provision of Treasury Management training courses is currently included in

the contract with Council’s external advisors. A number of different courses are

run to accommodate the different training requirements of staff involved in day

to day activities and those involved at a strategic level.

10.1.2In addition to extensive on the job training and an accounting technician

qualification, all staff authorised to deal on behalf of the Council will attend an

appropriate course which explains the complexities of dealing procedures,

interest calculations, credit ratings, the regulatory framework, different types of

investment instruments etc.

10.1.3Staff involved in managing the treasury management function will have a

professional accountancy qualification and will attend specific treasury

management courses as required eg to provide updates on the implications of

new regulations/legislation/codes of practice or to obtain latest economic

forecasts for the economy and interest rates.

10.2 STATEMENT OF PROFESSIONAL PRACTICE

10.2.1Those staff that are CIPFA members are required by their Institute to act in

accordance with CIPFA’s Standard of Professional Practice on Treasury

Management and the Chief Financial Officer also has a responsibility to ensure

that the relevant staff are appropriately trained.

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TMP 11 USE OF EXTERNAL SERVICE PROVIDERS

11.1 DETAILS OF CONTRACTS WITH SERVICE PROVIDERS, INCLUDING

BANKERS, BROKERS, CONSULTANTS, ADVISERS

11.1.1Banking services are provided by HSBC. He contract commenced on 1/4/97,

was renewed on 1/4/01 and now runs until 31/3/04. The estimated cost of the

service is £90,000 p.a. which is paid in monthly installments. There is no

provision for early termination of the contract.

11.1.2Money-broking services are provided by Garban, Martin Brokers (UK) and

Prebon Yamane. The Council uses these firms of brokers when it is either

investing or borrowing cash on the money market. All these firms charge a

brokerage rate of .1% of the principal sum which is only payable when the

Council borrows rather than lends. The total amount paid to these brokers in

fees was less than £10 (ten pounds) in 2001/02 as the Council very rarely

borrows. However, the firms will receive significantly more brokerage from the

counterparties borrowing the Council’s funds when investments are made.

11.1.3 Broking services for the purchase or sale of marketable securities eg

corporate bonds are provided by Insinger Townsley. In accordance with normal

practice for such brokers, the fees (usually .1%) are deducted from the unit

price of the security, so that the price quoted to the Council is a net contract

price (ie after deducting fees). Only one broker is currently used for

marketable securities as the Council would not normally expect to make more

than 2 or 3 investments each year and the fees charged are comparable to

money brokers.

EXTERNAL FUND MANAGERS

11.2 The Council currently employs two external fund managers – Investec and

Morley.

11.3 INVESTEC

11.3.1 Investec manages a cash fund for the Council which is invested in a combination of

cash, gilts and certificates and aims to outperform the seven day deposit rate by 15%

TMP 28 10/04/23


over a rolling 3 year period ie if the deposit rate is 5%, Investec’s target is to achieve

5.75%.

11.3.2Investec’s contract commenced on 21 March 1995 and is open ended although the

Council may terminate the agreement at any time by written notice to the Manager

and the Manager may terminate the agreement on 3 months’ written notice to the

Council or by immediate notice if so required by any competent regulatory authority.

11.3.3Investec’s fees are based on a percentage of the funds managed and equate to

£38,750 p.a. based on a £27 million managed fund (.14%). Payments are due quarterly

and the value of the fund at as at 31 March 2002 was £27.2 million.

11.3.4The investment counterparties used by Investec are restricted to those on the

Council’s lending list, subject to a maximum £5m to each name and a

maximum 25% of the fund invested in building societies.

11.3.5Quarterly performance reports rea recived from the Investec and meeting are

held twice yearly with the manager. These meetings are also attended by the

Council’s independent expert adviser.

11.3.6In managing the fund Investec are instructed not to exceed an average

duration of 4 years. In addition not more than 60% of the fund is to be invested

in fixed rate instruments with more than 364 days to maturity.

11.4 MORLEY FUND MANAGEMENT

11.4.1 Morley manages a gilt fund and was appointed on 1 August 2000. The contract is open

ended but the Council may terminate the agreement at any time by written notice to

the Manager and the Manager may terminate the agreement on 3 months’ written

notice to the Council or by immediate notice if so required by any competent

regulatory authority.

11.4.2The managers fee is based on a percentage of the fund and equates to £33,000

p.a. based on a £22 million managed fund (.15%). Payments are due quarterly

and the value of funds held as at 31 March 2002 was £21.9 million.

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11.4.3The benchmark for the fund is the FTSE A 0-5 yr Gilt Index and the aim is to

outperform this index by an average 0.5% p.a. over a 3 year period.

11.4.4Investments are constrained to gilts plus counterparties on the Council’s

lending list and the duration of the fund shall not exceed +/- 1 year against the

benchmark.

11.4.5 Performance is reported quarterly with valauations provided monthly.

Performance is reviewed at twice yearly meetings with the investment

managers which are also attended by the Council’s external adviser.

11.5 UNIT TRUST INVESTMENTS

11.5.1In addition to external fund managers for cash/gilts the Council also invests

funds in two equity funds - Norwich Union UK Growth Fund and Newton

Income Fund.

11.6 NORWICH UNION UK GROWTH

11.6.1 The investment in this fund commenced on 28 September 2001 and runs until the

Council provides written notice of termination. The objective of the fund is long term

capital appreciation through investment principally in UK equities against a

benchmark of the FTSE All Share Index and the average performance of all managers

in the same sector.

11.6.2 The fee is 0.7% of the fund which equates to £35,000 p.a. based on a £5 million

fund. Dividends are reinvested half yearly and the value of the investment as at

31March 2002 was £4.9 million.

11.6.3 Investment by the fund is principally in UK equities and reports are

provided half yearly.

11.7 NEWTON INCOME FUND

11.7.1The investment in this fund commenced 31 January 2002 and runs until

terminated by the Council in writing. The benchmark for the fund for

performance monitoring will be the FTSE All Share Index and the average

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performance of all managers in the same sector. The fund’s objective is to achieve

capital growth and income from a portfolio of predominantly UK equities.

11.7.2The fee is 0.7% of the fund value which equates to £28,000 p.a. based on a £4

million managed fund.

11.7.3Dividends are distributed quarterly and the value of funds held as at 31March

2002 was £4.2 million.

11.7.4Investment by the fund is principally in UK equities with half yearly reporting of

performance.

11.8 EXTERNAL ADVISERS

11.8.1 The Council appoints an external consultant to advise on treasury

management in order to obtain expert independent advice on a range of

treasury management issues eg interest rate forecasts, investment

instruments, investment strategy, credit ratings, performance monitoring,

appointment of fund managers etc. The contract is reviewed and re-tendered

every 3 years to ensure competitive pricing.

11.8.2 The cuurent supplier of the service is Sector Treasury Services Ltd. The

contract commenced 1 February 2001 and runs for 3 years until 31 January 2004. The

cost of the service is £9,500 per annum with payments due on 1 August and 1

February each year.

11.8.3 The Council may terminate the agreement on the first and second anniversary of the

contract by providing one months’ written notice. There is no provision for Sector to

terminate the contract early.

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TMP 12 CORPORATE GOVERNANCE

12.1The Council is committed to openness and transparency in its treasury

management activities as demonstrated by the production of these TMPs and the

adoption of the Treasury Management Code of Practice.

12.2In addition the Council has established the Finance and Accounts Review Panel

the responsibilities of which include the review of the treasury management

strategy and outturn reports.

12.3Information about the Council’s treasury management activities is freely

accessible and the strategy and outturn reports are public documents

12.4The procedures set out in these TMPs for reporting and audit of treasury

management activities (both by internal and external audit) are designed to

ensure the integrity and accountability of the function and these will be rigorously

enforced.

12.5Furthermore the use of competition between fund managers and the regular

retendering and review of contracts should ensure fairness in the allocation of

treasury management resources.

12.6 PROCEDURES FOR CONSULTATION WITH STAKEHOLDERS

12.6.1The presentation of the Treasury Management Strategy and Outturn to full

Council ensures all members are aware of the Council’s treasury management

strategy and activities.

12.6.2The production of quarterly reports to theTreasury Management Team ensures

that all those senior officers with a responsibility for treasury management

activities have the information necessary to enable them to fulfil their

obligations. In addition the consideration and approval of these TMPs by the

Leader and Deputy Leader ensures they are able to influence the procedures in

place for the management of treasury management activities.

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Business

Appendix 2